By Lesley Wroughton

WASHINGTON, Aug 29 (Reuters) - With more than $100 billion in foreign aid flowing into the world's poorest countries every year, donor talks starting in Ghana this weekend will focus on how to make aid more effective in reducing poverty.

The past few years have seen the international aid system become more complex due to a growing number of private foundations and new lenders such as China, while governments of poor countries were stretched by different demands from donors for aid.

"If you're going to scale up aid, then aid needs to be made more effective," World Bank Managing Director Ngozi Okonjo-Iweala, Nigeria's former finance minister, told Reuters.

"If we are all to work together more effectively in developing countries, we need to look at how we are doing business," said Okonjo-Iweala, who will attend the meeting in Accra starting on Sunday.

In terms of total dollars, the United States is the world's largest donor followed by Japan, France, Britain and Germany. When measured as a share of donor income, the most generous countries are Norway, Denmark, the Netherlands and Sweden.

The emergence of new donors like China, India, Saudi Arabia, Kuwait and Brazil, that have worked outside traditional systems, has turned the spotlight on making aid flows more transparent. Representatives from China and other emerging market countries will attend the Accra meeting.

Traditional donors in industrialized countries have expressed concerns that the new lenders may be imposing unmanageable new debt burdens on impoverished nations that recently won $50 billion in write-offs from rich countries, while also ignoring human rights and corruption.

Still, countries like China are pouring billions of dollars into building roads and railway lines in African countries endowed with natural resources, helping to fill a $22 billion a year gap in infrastructure financing.

"We need to work more effectively together," Okonjo-Iweala said. "We need to strengthen our partnerships, we need to work better with new donors that are coming in, and we need to do this through new ideas," she said.

Britain has proposed an international aid transparency initiative that will provide information to recipient countries so they can plan in advance.

Okonjo-Iweala said the World Bank supported introducing more transparency in aid flows and is also pushing donors to channel their aid through government budgets, to help strengthen institutions in poor countries. Many donors inject their aid directly into development projects, working through foreign agencies.

"We need to increase the transparency of aid and be more accountable for outcomes," she said. "To coordinate better, we need new instruments, and we need to pool funds."

Okonjo-Iweala cited the case of Afghanistan where two-thirds of aid flows are outside the budget, making it harder for the government to keep tabs on where the aid is going.

UNTYING AID

She said the rising cost of food that has further strained the budgets of poor countries and the poorest citizens had highlighted the need to "untie" their aid, especially when it comes to food.

Many donors tie their aid by requiring that certain goods and services be purchased from firms in their home country, which is politically easier.

"It doesn't make sense that if you live in Burkina Faso, and Nigeria has surplus food, or Mali, that you go to France or the U.S. to get it when you could get it next door if you had the cash," Okonjo-Iweala.

She said donors needed to become more creative and flexible with their aid, including creating new financial instruments that will make better use of international markets.

"How do we tap the liquidity that is out there to help countries?" Okonjo-Iweala said. "Whether we are doing this through crop or disaster insurance, whether we are building equity markets in these countries, or we are using local currency financing instruments, the issue is how do we innovate to help these countries." (Reporting by Lesley Wroughton, Editing by Chizu Nomiyama)

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